Paid search has become the most popular revenue producing venue for businesses world wide. Everyone is doing it, some making money and others losing it. Those that are doing their paid search correctly are reaping profits and making the search engines lots of money.

The principal is simple. Paid search focuses on only people with an interest in your product and the paid search system will bring only such people to your website. A truly revolutionary idea that brings yearly revenue to Google in the excess of 10 billion dollars.

So what’s the problem with this system? I will focus on one major problem, Click fraud.

Typical campaigns of the major search engines,  Google, Yahoo and MSN, will charge clients for the click on the ad of the client’s product wherever that ad may be. The engines place ads that the client companies have written and bid on with competitors. These ads, when clicked on, are charged to the client for advertising. Simple so far? Not at all.

The basic fact that these ads are only focused on the people that would be interested in such products, creates a situation that competitors, or anyone else, can sabotage a campaign by simply clicking on an ad to just eat away at the budget. This is click fraud.

The search engine companies themselves claim that they have mechanisms in place that can spot extra clicks and these are not charged to the customer. Clearly, multiple clicks from the same IP address are not charged to the customer as this is a clear indication of fraud. The search engines claim other methods to weed out more sophisticated campaign sabotaging techniques; however they don’t specify what those methods are. This has given birth to a whole new business, the click fraud verification business. One of these companies, ClickForensics, is claiming it has developed technology to decide which clicks on a campaign are fraudulent and which are not.

The click fraud companies claim that making the interested partner, in this case the search engine companies, responsible for deciding which clicks are fraudulent and which are not creates a conflict of interest. The search engine companies counterclaim that the click fraud companies also suffer from a conflict in interests since the inflated numbers of reported fraudulent clicks only justify the existence of click fraud companies reporting them and bring them more customers. Therefore there is an incentive for click fraud companies to report inflated fraudulent click statistics.

Google has openly stated that the ClickForensics has developed technology that mistakenly identifies false clicks. The argument between the two has gotten slightly out of hand, to such point that the representatives of these two main players will be holding separate sessions at the upcoming SES conference in San Jose, scheduled to take place between August 20-23.

Sounds like it is going to be a fun conference.